Performance for Week Ending 11/30/2018:
The Dow Jones Industrial Average (Dow) gained 5.16%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) added 4.57%, the Standard & Poor’s 500 Index (S&P 500) closed up 4.85% and the Nasdaq Composite Index (NASDAQ) tacked on 5.64%. Sector breadth was positive with all 11 of the S&P sector groups finishing the week higher. The Consumer Discretionary sector (+6.63%) led the way followed by Technology (+6.13%) and Healthcare (+5.90%).
||Closing Price 11/30/2018
||Percentage Change for Week Ending 11/30/2018
||Year-to-Date Percentage Change Through 11/30/2018
*See below for Index Definitions
MARKET OBSERVATIONS: 11/26/2018 – 11/30/2018
The major market indices finished the week solidly higher reflecting dovish commentary from the Federal Reserve and growing hope the US and China are at the early stages of finding resolution in the ongoing trade war saga. The threat of higher rates and negative fallout from the trade tensions have been a substantial headwind to the markets in recent weeks and the potential for easing tensions and a slower path forward for the Fed resulted in the S&P 500 posting the best percentage weekly gain in over 5 years.
Recall that markets were roiled back in early October after Fed Chairman Powell signaled that rates are a long way from neutral (i.e. the level that rates are neither helping or hurting the economy). The commentary appeared to suggest that the path higher for rates could be more aggressive than what the central bank had been telegraphing. However, speaking last week at the Economic Club of New York, Powell seemed to walk back his October comments by saying that the policy rate was now “just below” the neutral rate for the economy. The market interpreted this to mean that if rates are close to what policy makers ultimately judge is the neutral level, the Fed may hike rates less than previously projected.
The release of the November FOMC meeting minutes also underscored the change in tone. While the minutes signaled a rate hike at the December meeting is highly likely, the path next year appeared less certain as officials seemed more tentative about maintaining a pace of quarterly increases. The minutes stated that the committee would like to take a more “flexible approach” and wants to place a greater emphasis on the evaluation of incoming data to assess the economic and policy outlook. The Fed has a dual mandate—price stability and full employment—and data reports this week showed inflation pressure has started to ease while initial jobless claims have started to creep higher (although claims remain low by historical standards). Considering the data, a mildly more dovish Fed seems warranted.
Economic Round-Up: The Labor Department reported that initial jobless claims during the week ended November 24 rose 10K to 234K, well above the 220K expected by economists and the highest level since mid-May. Meanwhile, the Commerce Department reported that personal income in October rose by 0.5%, slightly ahead of the 0.4% gain expected by economists. Personal spending during the month grew by 0.6%, also ahead of expectations. The “core” PCE—the Fed’s preferred inflation barometer—rose 0.1% during the month and is up 1.8% on a year-over-year basis (but is down from the July peak of 2.02%). Lastly, the Commerce Department reported that the US economy expanding by 3.5% during Q3, unrevised from the initial estimate and in line with economists’ expectations. Personal Consumption rose by 3.6% but was below the initial estimate of 4.0% as spending on goods was revised lower. Even after the revision, average consumption growth over the past two quarters was the strongest since early 2015.
The holiday shopping season got off to a strong start with data from Adobe Analytics showing Cyber Monday sales topped $7.9 billion, an increase of 17.9% from last year. The sales made this year’s Cyber Monday the biggest online shopping day in U.S. history. By comparison, Thanksgiving Day and Black Friday brought in sales of $3.7 billion and $6.2 billion, respectively. The solid kick-off to the holiday shopping season was very encouraging as the US economy is consumer driven, with consumer spending accounting for nearly 70% of US economic activity.
Trade Tensions Starting to Ease? Last week’s market strength was also prompted by signs trade talks between the US and China are tentatively moving in the right directions. During the week, White House economic adviser Larry Kudlow told reporters that President Trump and China's Xi Jinping would meet for dinner at the G20 summit. Kudlow also suggested that "President Trump has indicated he is open" to making a deal to resolve ongoing trade tensions and possibly halt new tariffs on China-made goods. The olive branch from the White House was followed by an interview with China's ambassador to the United States, Cui Tiankai, who told Reuters that an all-out trade war between the world's two biggest economies was "unimaginable" and hoped the G20 talks could result in a way forward.
The constructive tone between the two countries seemed to help pacify nervous investors. While a full resolution is not likely to emerge from the G20 meeting, optimists are hoping for a ‘cease fire’ and a framework toward future negotiations.
The Week Ahead: The outcome of the G20 meeting will likely set the tone for trading this week while Friday’s payroll report and a mid-week testimony to Congress by Fed Chair Powell could also impact market activity. Reports of interest on the data calendar include; the November Institute for Supply Management (ISM) manufacturing index, October construction spending, November motor vehicle sales, the November ADP employment report, the November ISM non-manufacturing index, the Fed’s periodic Beige Book report, and the University of Michigan’s December consumer sentiment survey. Third-quarter earnings season is mostly done, though there are a few stragglers left to report, with 10 members of the S&P 500 scheduled to release results. Besides Fed Chair Powell, four other Fed Heads will make public appearances: New York president John Williams on Monday and Tuesday; Dallas president Robert Kaplan on Monday; Governor Lael Brainard on Monday and Friday; and Atlanta president Raphael Bostic on Thursday.
The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.
Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.
Standard and Poor's 500© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.
This material contains opinions of the author, but not necessarily those of Guggenheim Partners, LLC or its subsidiaries. The opinions contained herein are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information. No part of this material may be reproduced or referred to in any form, without express written permission of Guggenheim Partners, LLC.
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